We frequently hear ‘bigger savings’ as one of the New Year’s resolutions that people will try to follow for the year. After all, most people look back on the previous year and realise that saving more is the best way to achieve financial freedom, especially if they were struggling in this aspect of their lives.
That probably includes you. You may have mumbled to yourself or a close friend, “If only I saved more money, I would never have to suffer about my current condition again.”
However, does saving or making more money ensure that you will fix your financial difficulties if you are currently in debt and rely on paychecks? Here is the truth: depending entirely on savings may not be the solution to every financial problem. Here are the reasons why and the things you can do instead of purely relying on savings.
When speaking about finances, have you ever asked yourself, ‘Do I have good habits in managing my finances in terms of obligations?’ Yes, we cannot deny that making and saving money is great and can help you get out of debt much faster, but only if you use it wisely.
Therefore, please make sure you consider your habits when handling money to avoid ending up back in debt with bigger numbers. Ask yourself these questions, and check and cross-check each of them.
- Do you believe that debt is an ordinary component of life, which makes you more trustworthy to lenders?
- Are you careless with your money, causing you to have a spending issue?
- Do you always finance your everyday spending with credit cards?
- Are you spending more than you make?
- Are you still stuck in the mindset that more money is the solution to your debt problem?
We recommend that you do this because having more money will not likely lead to paying your bills or making a dent in your mountain of debt if you are not going to change your behaviour when managing your finances. Remember, there is a famous principle called Parkinson’s Law that essentially says that expenses rise to meet income.
No growth if you merely save
When payday approaches, who doesn’t check their savings account balance several times? We are pretty sure everyone has had this experience. You cannot wait to divide each share of your income among savings, payments, and so forth.
However, you are still not feeling enough to meet all of your financial needs, and you are constantly dissatisfied. Of course, the money you have in savings will not grow much; instead, it will lose value in the process of paying debts.
Yes, a typical savings account is far safer because it offers low interest rates, but your funds’ growth potential is limited. That means you must consider a variety of income sources. Let’s start by investing and diversifying your portfolio by looking into bonds, stocks, or real estate assets that can open doors for substantial growth and wealth building.
Add multiple incomes: investment
Instead of letting your money sit dormant, there are passive income streams, such as stock dividends or rental income from real estate, that can provide higher returns and help you expand your wealth.
With an annual interest rate of 0.5%, the SGD 15,000 resting in your savings account will rise to SGD 15,075. However, if you invest SGD $7,500 in a diversified portfolio of stocks with an average annual return of 7–10%, your savings might possibly rise to SGD 8,025–SGD 8,250, depending on market performance and dividend reinvestment.
Moving money from savings to investments can also offset the risks associated with inflation. Diversifying your income portfolio increases your long-term financial security and prosperity.
Emergency needs know no time
Life is unpredictable, and we cannot always be prepared to weather financial storms. Regardless of how diligently you save, unexpected events can immediately drain your financial goals. Perhaps you had been certain of having $100,000 after diligently saving over the years. You believe you have large funds laid aside for future crises and ambitions.
Yet, life will always demand quick attention, and health is the most expensive asset we have. After you have paid for your medical expenses and necessary treatment, you may find yourself struggling with your current savings.
If you are concerned about the high cost of an emergency but don’t want to empty your savings, there are personal loans from reputable institutions or licensed money lenders online in Singapore to help with this concern.
According to Robert Kiyosaki, a prominent investing book author, ‘It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.’ That means the money we keep alone will not address our financial problems.
The money you save can be eaten up by various kinds of incidents. Instead, investing and finding ways to earn a higher or passive income will continue to safeguard your financial stability.